I’ve been getting a lot of flack in the press … from some readers … an even some of my subscribers for remaining short-term bearish on the metals.
Hardly surprising, when you consider that the vast majority of investors and analysts get most markets wrong, the majority of the time … buying way too often near highs, and selling out near lows. Especially when they’re so emotional about markets like precious metals.
So today, I want to give you even more details on why I am bearish on the precious metals now. But please keep in mind that on a long-term basis, I am more bullish on precious metals and commodities, in general, than ever before!
For the time being, though, I repeat my warnings: The recent excitement and accelerated move up in the precious metals is fraught with dangers. Soon, they will tank hard, and many investors will take a shellacking.
First, on a yearly basis, even the strongest bull markets rarely move up more than 11 years in a row on an annual closing basis, without taking a major pause.
Gold’s previous bear market bottomed in July 1999 at a closing low of $252.80. Counting 11 years forward means gold’s first major annual closing high should have occurred in 2010. And that’s precisely what happened.
In other words, on a closing basis, gold fulfilled an 11-year cycle high in 2010. Gold’s bull market will last much longer, as long as 21 years, but not without a major pause occurring on the tail end of the first 11-year move up.
So even though gold has now made a new intra-year 2011 high, odds strongly favor that we will see lower prices in the months ahead. The same applies to silver.
Second, gold and silver are extremely overbought on both the monthly and weekly charts.
Consider this weekly chart of gold as an example.
Notice how gold has been climbing, while the relative strength of the uptrend, in the bottom portion of the chart, is overbought, but diverging and starting to trend lower. This is a bearish omen.
Also note the slightly upward sloped trend channel that I’ve drawn in for you. This is a cyclical uptrend channel.
As you can see, gold’s recent new record high hit the upper line right on the nose, failed to break through it, and has now turned back down.
As long as this resistance level remains intact, it is unlikely we will see gold truly break out to the upside in a new major leg up.
The upper line, you will note, also corresponds to my line in the sand for gold that I have mentioned in previous columns. If gold closes above $1,453, then yes, gold will likely prepare for a major move to $2,000 plus. But even then, I would wait for a pullback to add to gold positions.
Third, gold’s daily cycles point down heading into the end of the month, early April, while a new composite of the weekly cycles suggest weakness all the way into July. Note the cycle chart here. Silver’s cyclical outlook is similar.
Fourth, and very importantly, is gold mining shares.
With a few minor exceptions, most major mining shares are not confirming gold and silver’s latest moves up.
Consider the chart of top gold miner Newmont Mining (NEM). Its share price has been sliding since last September, and just broke important support at the $54 level.
Or consider Agnico Eagle (AEM), whose share price is now nearly 23% off its previous record high.
Or, consider major silver producer Hecla Mining, whose share price is in a solid downtrend, performing terribly, and just broke an important uptrend line.
These charts reveal a glaring disconnect between the price action in gold and silver, and mining shares.
Yes, it could be that most mining shares are just not believing the rally in the precious metals, and that if the metals rally continues, most shares will spring back to life.
But that’s not how a trader or savvy investor handles this kind of disconnect.
Historically, when the price of top mining shares is not confirming moves up in gold and silver, it’s almost always a short-term bearish signal for the metals.
So, for right now, I believe that it’s still far better to wait for either …
- Confirmation of the breakout in gold and silver. Or …
- Bottoming action in the top miners, along with a correction in gold and silver.
Right now, we have neither of the above. So, the smart thing to do is to remain cautious and wait for appropriate signals before adding to or buying new positions in the metals sector.
On the downside, I still fully expect we will see gold test the $1,225 level, and silver, the $23 level.
But don’t worry. There’s plenty of long-term profit potential ahead in the precious metals bull market. In fact, the more gold and silver pullback now, the greater the long-term upside potential.
To fully capitalize on it, you need to conserve your ammo during times like these, so you can deploy your capital at the right time for maximum profit potential.
Now, another forecast I want to reiterate: I am bearish on the economy and the broad U.S. stock markets here, with the Dow having fulfilled my target of reaching the 12,400 level, and with its cycles now starting to point lower.
Plus, last Thursday, the Dow gave me an important sell signal when it closed below 12,035. For your benefit, here are the important support levels you should be watching for in the Dow on the way down, generated by my proprietary cyclical and technical models …
I fully expect we will see the Dow fall below 10,000 to at least 9,678 on this move. It will not be a straight down slide. There will be much volatility and confusion. Ditto for the precious metals as they slide.
Also note: Do not be surprised if you see the dollar rally in the weeks ahead. It’s oversold and due for a bounce.
Lastly, don’t be surprised if you see quite a bit of negative news come out. Markets lead the news, so as they begin to turn south, so will market sentiment.
I’ve previously suggested that you consider owning the inverse S&P 500 ETF, ProShares Short S&P 500 ETF (SH) — to seek to profit from a move down in stocks, or to help you hedge stocks that you cannot liquidate, for whatever reason, such as those in your 401(k).
If you haven’t acted on that suggestion, I recommend you do so as soon as possible.
Best wishes, as always …
P.S. If you think running with the herd is the way to make big money in the markets, that’s ok.
BUT, if you realize the value of independent thinking, research and objective analysis, and, understand that making big money often involves being a contrarian, then I suggest you become a member of my Real Wealth Report by clicking here now .